After the family home, the divorce pension is often the most valuable asset a divorcing couple can have. Therefore, you need to know what happens to it in the event of separation and divorce. Contact our separation and divorce advisors for more about how assets are divided after a divorce in Ireland.
Who decides how the pension is shared?
Since The Family Law Act 1995 and the Family Law (Divorce) Act 1996, courts are able to allocate pension rights between separating and divorcing couples in Ireland. No matter how amicable the separation is, you need a Court Order to divide pension rights.
Oftentimes, divorce pensions are neglected by couples who only focus on other assets such as the family home or furniture. However, you can apply for a Pension Adjustment Order “PAO”, when the relationship ends.
How does a mortgage after divorce work in Ireland?
When applying for a PAO, as a spouse, you must provide details of your property and your income to the other spouse. Including information about any pension benefits. Then, the Court will assess all the information and may serve an order. This order is called the PAO (Pension Adjustment Order). It can require the pension’s trustees to pay benefits to the other spouse. Plus, the PAO can require the other spouse to pay benefits to another family member.
Does it apply to all pensions?
In the divorce process, the PAO only applies to a certain type of divorce pension;
- Personal Retirement Savings Accounts (PRSAs)
- Occupational Pension Schemes, are pensions provided by your employer. This can apply to a current pension scheme or a pension scheme of which you were formerly a member.
- Additional Voluntary Contributions (AVCs).
- Personal Retirement Savings Accounts (PRSAs).
- Retirement Annuity Contracts (RACs) including Trust RACs.
- Buy out Bonds/Personal Retirement Bonds.
If you happen to have different pension arrangements, you are required to have a separate PAO for each one of them. However, benefits accumulated under the Social Welfare Act and disability benefits are not included. Contact our separation and divorce advisors for more information.
How many mortgages will I get after a divorce in Ireland?
Two main factors are important to the court; The “relevant period” and the “relevant percentage”. The relevant period refers to the fact that benefits accumulated after separation can’t be shared. Also, you will have the option to exchange another asset, instead of keeping the current pension’s benefits.
For instance, a Pension Adjustment Order (PAO) may be presented as follows:
- The period of measurable service over which the designated benefit is deemed to have accrued is the period commencing on 1st January 2009 and ending on 1st January 2020.
- The relevant percentage of the Retirement Benefits accrued over the Designated Period and to be paid to the Beneficiary is 50%.
Here, the spouse, who is not part of the pension scheme, will get 50% of the benefit that the member earned from 2009 to 2020. The calculation depends on whether the pension is defined as a benefit or a contribution. In either case, a transfer value will be offered to the spouse receiving the PAO. The receiving spouse could also set up an independent benefit within the member’s pension scheme.
What happens when the pension scheme member retires?
If the pension member spouse retires and the spouse who benefited from the PAO has not transferred their benefit to another pension or has not set up an independent benefit, the non-member spouse must also take their retirement benefits.
They cannot remain in their former partner’s pension scheme independently after their former partner retires. Remember that taking retirement benefits can be considered a separate act from ‘retiring’ and finishing your working life.
A PAO must also be considered at retirement in relation to Standard Fund Thresholds and Tax-Free Lump Sum payments.
Standard Fund Thresholds: When calculating a member’s standard fund threshold limit (currently €2 million), the member’s entitlement is calculated as the total value they would have received if a PAO was never made. If this calculation puts the member over the Threshold, the chargeable excess tax liability is divided between the member and the non-member spouse on a pro-rata basis.
Tax-free lump sum: Subject to Revenue regulations, there are formulas for calculating the lump payable to a member on retirement. Currently, up to €200,000 of this lump sum can be paid tax-free. Where a PAO exists, there is a separate €200,000 limit for the member spouse and the non-member spouse.
How Do Our Separation and Divorce Advisors help?
If you are going through a separation or a divorce, our financial advisors can help you with a mortgage after a divorce. Call 01 853 2727 or contact us here, our separation and divorce advisors will assess your situation and give you personalized advice. And, how are assets divided after a divorce in Ireland? If you want to know more about divorce pensions, click here.